Bolster welfare before raising tax threshold again - IMF
Published:Tuesday | May 31, 2016 | 12:00 AMMcPherse Thompson
Staff of the International Monetary Fund (IMF) has recommended that the Jamaican Government strengthen conditional cash transfers in order to protect the vulnerable from the shift from direct to indirect taxes, which will start in earnest with increases in the income tax threshold.
The Government has signalled its intention to increase the income tax threshold to just over $1 million from the current $592,000, effective July 1, representing the first of a two-part policy move. In the second, effective April 1, 2017, the threshold will move to $1.5 million.
However, an IMF staff mission, which conducted the 11th and 12th review of Jamaica's four-year economic support programme under the Extended Fund Facility, said that "prior to undertaking the second step in raising the minimum threshold for income tax, attention should be directed to strengthening conditional cash transfers and improving targeting in order to protect the poor and vulnerable from the shift from direct to indirect taxes".
Part of the quantitative performance criteria under the IMF programme is a floor on central government social spending, defined as a minimum annual expenditure on specified social-protection initiatives and programmes.
Improved administrative efficiency
In the memorandum of economic and financial policies submitted to the IMF executive board in December 2015, the then Government said it was aiming to improve the administrative efficiency of social-protection programmes.
The memorandum said a comprehensive plan for transition of the Programme for Advancement through Health and Education (PATH) and National Insurance Scheme payments to retail electronic payment products is expected by end-June 2016.
Measures to deepen payment infrastructure in rural areas and streamline procedures for collecting social payments were also being identified.
Noting that social-protection programmes continued to be a priority, the report said a strategy was in place to provide targeted assistance to those households supported by conditional cash transfers through the PATH programme in the form of job training, grants for continued education, and assistance with job search.
"The Government is also working to streamline procedures for making social transfers, deepening the infrastructure for electronic payments of social protection programmes in rural areas, and strengthening the administrative efficiency of social protection programmes," it said.
Social spending
Social spending is computed as the sum of central government spending on social-protection programmes as articulated in the central government budget for a particular fiscal year. Those programmes are funded by Government of Jamaica resources only and comprise conditional cash transfers to children 0 to 18 years and the elderly, youth, employment programmes, the poor relief programme for both indoor and outdoor poor, the school feeding programme, and the basic-school subsidy.
According to the technical memorandum of understanding accompanying the report, in particular, the target comprises spending on specific capital and recurrent programmes.
On capital expenditure, it said the following specific programmes must be included in the target: youth employment programmes comprising on-the-job training, summer employment and employment-internship programme; conditional cash transfers comprising children health grant, children education grants, tertiary level, pregnant and lactation grants, disabled adult grants, adult under-65 grants and adults over-65 grants.
On recurrent expenditure, the following specific programmes must be included in the floor on social expenditure: school feeding programmes, including operating costs; poor relief (both indoor and outdoor) including operating costs; golden age homes; children's home, places of safety and foster care, including operating cost; career advancement programme; and the National Youth Service programme.